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TITLE- "Critcially evaluate a business to business marketing manager's approach to
pricing versus business to consumer counterpart."
MODULE TITLE-Business to Business Marketing
LECTURERS- Barry Forrester
1. Business to Business Marketing Managers approach to pricing 2. Business to Consumer Marketing Managers approach to pricing
Business to Business Marketing Managers approach to pricing
What is B2B? According to (Connick, W. (n.d.), B2B is short for “business to company.” It indicates trading with other organizations, rather than trading with people. The latter is generally known as “business to consumer” sales.B2B trade often takes the method of one company promoting resources or elements to another. For example, a tire producer might deal with a car producer. Wholesale suppliers often offer their products to retailers, who then convert around and offer them to customers. Markets are a traditional example: they buy food from wholesalers and then offer it at a little higher price to people. Business-to-business trade can also provide expertise. Legal professionals who take cases for companies, accounting organizations that help organizations do their taxation, and specialized professionals who set up systems and e-mail are all illustrations of B2B organizations. A few examples of “B2B” product based companies would be: ? Ex1: Selling CRM Software “Customer relationship management” to organizations so they can keep track of their sales leads, manage their sales cycles and determine a cold-calling schedule (Sundheim, K. (2011).
Ex2: Selling office equipment to companies who wish to upgrade their existing furniture (Sundheim, K. (2011). Ex3: Selling security and access control hardware and systems to building management companies, universities and municipalities (Sundheim, K. (2011).
Generally cost is a part of an exchange or deal that occurs between two parties and represents what must be given up by one party (i.e., buyer) in order to acquire something provided by another party (i.e., seller).For those buying, such as final customers, cost represents what must be given up to acquire benefits. In most situations what is given up is financial concern (e.g., money) in return for obtaining entry to a good or service. To suppliers in a deal, cost shows the income generated for each item marketed and, thus, is an important aspect in identifying revenue Knowthis.com (2011). According to (Hinterhuber (2012), Pricing has a huge impact on pro?tability. Pricing strategies vary considerably across industries, countries and customers. s. Nevertheless, researchers generally concur that pricing strategies can be categorised into three groups:
1. Cost-based pricing; 2. Competition-based pricing; and 3. Customer value-based pricing
Source: Management and Strategy (2012)
Size of B2B markets: B2B marketplaces are usually small straight marketplaces, often smaller in dimension, consists of a few thousand sales prospects to maybe as large as 100,000 prospects (Mymarketingdept.com (2000).
Purchasing Process: B2B sales generally have a buying process described in months and the purchase is complicated and needs consultative promoting taking extra several months to finish (Mymarketingdept.com (2000).
Sales Process: B2B sales require consultative promoting sometimes from a two-step level sales company such as the suppliers sales force and a distribution sales force (Mymarketingdept.com (2000).
Cost of Sale: B2B sales are "higher ticket" buys usually priced at from few million dollars to thousands of dollars (Mymarketingdept.com (2000).
Purchasing Decision: The choice to buy in B2B revenue is usually motivated by need and costs therefore; it tends to be a very reasoning choice (Mymarketingdept.com (2000).
Lifetime value of customers: The life-time value of a B2B client is much greater due to the more cost of sales and the chance of do it again or add-on revenue to the same client (Mymarketingdept.com (2000).
There are many options and techniques to identify the cost of your goods and services. The B2B costs strategy matrix considers three features of establishing prices, amount, recognized value and cost in a range of each feature Mymarketingdept.com (2000). B2B Pricing Strategy Matrix Price Perceived Value High Medium Low Commodity Lowest quality with no differentiation among competitors Value Good quality at a reasonable price Low Medium High Premium Highest quality product/service at a premium price - prestige brand
Promotional Temporary Price
Skimming Mediocre quality at a high price
Source: Mymarketingdept.c om (2000)
Source: Marketingmo.com (2006) Price is one of the classic “4 Ps” of marketing (product, price, place, promotion). Yet in many B2B companies, marketers aren’t necessarily involved in pricing strategy. Pricing is a complex subject – there are many factors to consider, both shortand long-term. For example, your prices need to: ? Reflect the value you provide versus your competitors ? Consider what the market will truly pay for your offering ? Enable you to reach your revenue and market share goals ? Maximize your profits (Marketingmo.com (2006) Pricing across product life cycle The ideal decision of marketing new items can be best recognized by analysing the guidelines at the limitations of the array from skimming to penetration. This is especially important in pricing new items because the potential income to customers of a new products, for example will differ by market segment (Hutt, M. and Speh, T. (2007). Skimming A skimming approach, appropriate for a remarkably new item, provides an opportunity to viably arrive at areas that are not delicate to the high preliminary cost.
As an item ages, as opponents get into the industry, and as business customers become more acquainted to assessing and buying the item, demand becomes more price elastic (Hutt, M. and Speh, T. (2007). Penetration A penetration policy is appropriate when there is 1) high price flexibility of demand, 2) Strong risk of certain competitors, and 3) opportunity for a significant decrease in production expenditures as volume increases. Illustrating on the experience effect, a company that can quickly obtain significant business and experience can obtain an ideal advantage over opponents (Hutt, M. and Speh, T. (2007). Product line considerations The contemporary industrial company with a long product line encounters the complicated problem of controlling prices in the item mix. Companies increase their product lines because the requirements for various products are interdependent because the expenditures of generating and marketing those items are interdependent, or both (Hutt, M. and Speh, T. (2007).
Source: LIVESEYSOLAR (2012) Industrial Pricing Process There is no easy formula for pricing an industrial product or service. The choice is multidimensional: The interactive factors of demand, cost, competitors, profit relationships, and customer usage styles assume importance, as the marketer creates the role that price will play in the company's strategy (Hutt, M. and Speh, T. (2005).
Price Objectives The costs choice must be based on goals congruent with promotion and over-all corporate goals. The marketer starts with key goals and adds security costs goals:1)achieving a target revenue, 2)achieving a market-share goal, or 3)meeting competitors (Hutt, M. and Speh, T. (2005).
Demand Determinants A powerful industry viewpoint is essential in costs. The business market is different and complicated. A single commercial item can be used in many ways; each industry section may signify a exclusive program for the item and an individual utilization level. The level of significance of the commercial good in the customer's end product also ranges by industry section (Hutt, M. and Speh, T. (2005).
Assessing Value How organisational customers will assess the cost of the complete offering decides the relevance of a particular commercial costs technique. Two opponents with similar products may ask different types of costs because their total offerings are recognized by customers as being exclusive. In the sight of the organisational customer one company may provide more value than other (Hutt, M. and Speh, T. (2005).
Source: (Emerald (2012) B2B costs is all about linking the income style to the client's company situation and then asking for accordingly. Yet most B2B organizations still exercise easy price plus costs, thereby making significant income on the desk. Pricing in a worldwide company is often separated into three turned off methods, resulting in suboptimization and missing earnings. Departments generally set starting costs but are often not accountable beyond that. Regional salesmen are most often accountable for last discussions. In between these two, the promotion office is generally accountable for the wallet price fountain, which is a way of identifying why the focus on price was not met and for the progression of applications that will increase income. These three categories generally do not work together on costs. Companies have often done very little analysis to find out the consumer's desire to pay. The outcome is that costs – and therefore profit! – is far from enhanced Pricegain.com (2012).
Business to Consumer Marketing Managers approach to pricing
B2C” – means that you are selling a product or service directly to the consumer as opposed to selling a product to service to another business (Sundheim, K. (2011). Examples of “B2C” product-based companies: ? Ex1: Selling t-shirts geared toward the individual consumer
Ex2: Selling lipstick marketed toward teenage buyers Ex3: Selling custom skateboards. (Sundheim, K. (2011)
According to Cheshirehenbury.com (1990), the business-to-consumer (B2C) group is a much more recent area and mostly means digital marketing over the Online. This classification has extended significantly in the late Nineties with the growth of community access to the Online. The business-to-consumer classification contains digital shopping, information searching (e.g. train timetables) but also entertaining games provided over online. Popular items purchased via digital marketing are air travel, books, computer systems, videotapes, and music CDs.
According to Apextwo.com (1990), B2C companies employ different promotion strategies for publicizing their products or services. This would include deals, deals, e-mail explosions, websites, unique offers and the likes to attract their audience to buy. These strategies are much reduced in length thus the immediate need to protect the client's interest very quickly. The path to purchase must be short and simple – just a few presses from e-mail bill to order verification. Any more than a couple of presses and the client is likely to get away from the shopping island application. The proactive approach must be apparent and the offer attractive. As such, e-mail promotions often emphasize offers and discount that can be used both online and in store. They can also be useful especially if the aim is to build the brand and boost client commitment. Loyalty is an important factor in B2C promotion.
? ? ? ? ? ? ?
Product driven Maximize the value of the transaction Large target market Single step buying process, shorter sales cycle Brand identity created through repetition and imagery Merchandising and point of purchase activities Emotional buying decision based on status, desire, or price (Apextwo.com (1990),
Size of B2B markets: B2C marketplaces that are usually large wide marketplaces of tens to thousands to millions of sales prospects. (Mymarketingdept.com (2000).
Purchasing Process: B2C sales have short buying times of anywhere from a few moments (the wish buy), to a few days and is a simple purchase consummated instantly (Mymarketingdept.com (2000).
Sales Process: B2C sales are usually immediate to the individual or include a store. The sales strategy is a conventional item offer of "convincing the consumer" they need the products or services being marketed (Mymarketingdept.com (2000).
Cost of Sale: B2C sales can range in price from a dollar to a few million dollars .Except, for vehicles and houses (Mymarketingdept.com (2000).
Purchasing Decision: B2C purchase choices are usually made based on want more than need or a funds and therefore are activated by more psychological choices (Mymarketingdept.com (2000).
Lifetime value of customers: The life-time value of a B2C client is reduced than B2B because of the cheaper individual purchase and repeat sales are usually less (Mymarketingdept.com (2000).
Price and B2C Marketing Mix The relationship between price and other elements of the marketing mix can now be discussed in more detail under the headings identified below. 1.) Price and Product 2.) Price and Distribution 3.) Price and Promotion (Wright, R. (2004) Price and product value in B2C markets In B2C marketplaces there is a constantly moving connection between the cost of the item and the included value components such as product packaging, excellent, operate and, most of all, advertising. When looking around and evaluating different goods and solutions the end client will be consistently controlling the cost and item to
reach what they consider best overall value. Unlike B2B marketplaces the interaction between cost and value in B2C goods and solutions will mostly take place in a casual style in the mind of the individual (Wright, R. (2004). Price and Distribution There are two primary techniques available for B2B and B2c organisations: promotion immediate or promotion oblique. It was determined that B2c company will mostly offer through suppliers and B2B will offer immediate.B2C wholesale suppliers promoting to suppliers might bring out many of the things conducted in B2B but the comparative variations are: 1) Less complexness in items 2) Dealing with completed items often labelled rather than element areas 3) Less immediate shipping times 4) Less need for product understanding (Wright, R. (2004). Price and Promotion As with other elements of the marketing mix, a relationship exists between price and promotion and a few of these elements will be examined here. Advertising and Price Marketing is used in both B2B and B2C. The expenditures of advertising will have an impact on costs that is gradually energized. Mass advertising- TV, paper and radio-is most widely used in B2C marketplaces because of store bought sections and much less in B2B because of lesser marketplaces. Its excellent durability is to promote manufacturers both nationwide and across the community. There is no question that the huge expenditures engaged must be gradually seen in the cost energized, which in the end many customers are ready to pay because of the additional value associated with these manufacturers (Wright, R. (2004). Some of the important marketing strategies in B2C Marketing Campaign: Advertising always helps arrive at the audience with regards to creating attention of the features and USP of the items. Effective promotion strategies also happen to be some B2C promotion tasks, like an organization associate that immediately gets to the potential customers and publicizes the products/ services provided by the organization. This is mostly done in off-line B2C promotion (Bhatti, S. (2011). Online marketing strategies: On the internet promotion strategies such as PPC and Podcast are among the most efficient and efficient resources of online promotion on various search engines such as Google, empowering a chance to make product attention among the potential customers using Internet (Bhatti, S. (2011). Extraordinary USP: This is one major factor that chooses the success of promotion, specifically when it comes to B2C marketing! Certainly, B2C promotion has more broader audience as it deals with customer based products, but there is also more
business competition! Therefore, the key to efficient B2C online promotion technique is to have an edge over the opponents and to clearly highlight the same in your USP tag line! Create an impact that your opponents can't offer what you can! (Bhatti, S. (2011) Although both the promotion types are profit focused, the approach to do so is different. The key to successful B2C online promotion technique is just to understand and make products and services as per customer objectives, and then not enabling the opponents to take away your business (Bhatti, S. (2011).
Price and Sales promotion Price and sales promotion is also used in B2C marketplaces as a aspect of pull promotion campaign. Price reduced immediately off the item, by use of cash off deals, buy now and pay later. Included value for the same cost, and so on, is targeted immediately at the end customer, motivating them to check out the store to look for out then cost inventory. The store in turn looks for more from upstream providers and so inventory is drawn down along the supply chain (Wright, R. (2004). Understanding customer behaviour, of all sections in an industry, whether it’s in a B2B industry, or a B2C industry, is a key factor in costs for success. Price and costs technique is intertwined firmly with all other elements of the promotion mix change the item and you need to review the cost change the submission, you'll also need to alter cost, change the advertising mean examining cost, so does modifying procedures, modifying the people who support the item, modifying the ranking all demand cost re-development. Advanced costs technique is about innovative promotion management: Real-time for each individual segment! Most of all cost can be the most technically controllable, and most possibly highly effective, profitgenerating tool in the promotion mix (Launchengineering.com (2010). Value-based costs use buyers’ views of value, not the selling price, as the key to costs. The enterprise uses non-price factors in the promotion mix to develop up recognized value in the buyers’ thoughts. Price is set to go with the recognized value (Launchengineering.com (2010). Cost can be essential in making a declaration about your quality. Cost infers value or the deficit of it. Cost doesn't matter to some, but is essential to others and so involve knowing your areas and focus on leads becomes obvious. Pricing products properly is the black art of all promotion. Handled wisely, item costs can be a powerful diverse, without thought, self-discipline and promotion knowledge, deficit of item costs technique can deteriorate profits and challenge manufacturers. Pricing technique should progress from your objective, perspective and purpose for being as well as a romantic understanding the complicated buying behaviour and needs of
your excellent potential viewers, and brief & precise tracking of close opponents (Launchengineering.com (2010). B2C promotion is regarded exclusive for the simple purpose that the market is able to reach regional limitations and obtain globally viewers. In addition, companies are able to get to the customers straight and decrease broker suppliers when the product needs to be allocated using long-established ways. B2C promotion also allows companies to cut expenditures.B2C promotion allows most companies freedom and independence. The result is that even an small web based business is given the chance to go up against larger suppliers. This can be carried out simply because the expenditures suggested as a factor in online B2C promotion is not as much as in traditional promotion (Global_B2B (2011) .
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Hutt, M. and Speh, T. (2007) Business Marketing Management:B2B . 9th ed. United States of America: Neil Marquardlt, p.379,380.
Hutt, M. and Speh, T. (2005) Business Marketing Management:B2B . 8th ed. United States of America: Phoenix Color, p.387,388,389.
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LIVESEYSOLAR (2012) Pricing professional services and product life cycles: why you probably should be increasing your price. [image online] Available at: http://liveseysolar.com/pricing-professional-services-and-product-life-cycles-case-study [Accessed: 30 Apr 2012].
Management and Strategy (2012) Pricing Strategies. [image online] Available at: http://mgmtblog.com/?m=200706 [Accessed: 28 Apr 2012].
Marketingmo.com (2006) Develop a Pricing Strategy | Marketing M.O.. [online] Available at: http://www.marketingmo.com/strategic-planning/how-to-develop-a-pricing-strategy/ [Accessed: 29 Apr 2012].
Mymarketingdept.com (2000) Comparing B2B versus B2C Marketing. [online] Available at: http://www.mymarketingdept.com/comparing-b2b-versus-b2c-marketing/ [Accessed: 28 Apr 2012].
Mymarketingdept.com (2000) B2B Pricing Strategy. [online] Available at: http://www.mymarketingdept.com/b2b-pricing-strategy/ [Accessed: 28 Apr 2012].
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Sundheim, K. (2011) What Is B2B And Why Choose This Business Model?. [online] Available at: http://www.entrepreneurs-journey.com/8127/what-is-b2b/ [Accessed: 27 Apr 2012].
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